SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period from _________________________to______________________
Commission file number 0-1469
CHURCHILL DOWNS INCORPORATED
(Exact name of registrant as specified in its charter)
KENTUCKY 61-0156015
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
700 CENTRAL AVENUE, LOUISVILLE, KY 40208
(Address of principal executive offices)
(Zip Code)
(502) 636-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No______
The number of shares outstanding of registrant's common stock at November 5,
1996 was 3,654,264 shares.
Page 1 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
I N D E X
PAGES
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets, September 30,
1996, December 31, 1995 and September 30, 1995 3
Condensed Consolidated Statements of Operations
for the nine months ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Operations
for the three months ended September 30, 1996 and 1995 5
Consolidated Statement of Stockholders' Equity
for the nine months ended September 30, 1996 6
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995 7
Condensed Notes to Consolidated Financial Statements 8-10
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-21
PART II. OTHER INFORMATION AND SIGNATURES
ITEM 6. Exhibits and Reports on Form 8-K 22
Signatures 23
Exhibit Index 24
Exhibit 24-32
Page 2 of 33
<PAGE>
<TABLE>
<CAPTION>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31, September 30,
ASSETS 1996 1995 1995
----------- ----------- ------------
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 9,546,648 $ 5,856,188 $ 3,597,668
Accounts receivable 3,152,738 2,098,901 1,226,462
Other current assets 263,007 549,820 814,263
----------- ----------- -----------
Total current assets 12,962,393 8,504,909 5,638,393
Other assets 3,822,956 4,632,044 4,821,299
Property, plant and equipment 99,743,493 97,451,463 97,137,205
Less accumulated depreciation (36,141,096) (33,101,934) (33,121,064)
----------- ----------- -----------
63,602,397 64,349,529 64,016,141
----------- ----------- -----------
$80,387,746 $77,486,482 $74,475,833
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 70,097 $ 70,097 $ 425,213
Accounts payable 13,000,577 6,517,508 7,358,218
Accrued expenses 3,577,485 3,310,882 1,577,186
Dividends payable -- 1,892,302 --
Income taxes payable 2,569,508 1,049,508 1,636,008
Deferred revenue 1,825,689 6,098,541 1,428,016
------------ ------------ -----------
Total current liabilities 21,043,356 18,938,838 12,424,641
Notes payable 2,885,784 6,351,079 7,088,059
Outstanding mutuel tickets
(payable after one year) 2,564,265 2,256,696 2,517,399
Deferred compensation 1,092,562 871,212 1,056,554
Deferred income taxes 2,415,500 2,415,500 2,248,000
Minority interest 175,391 -- 163,800
Stockholders' equity:
Preferred stock, no par value;
authorized, 250,000 shares; issued, none
Common stock, no par value; authorized,
10 million shares; outstanding,
3,654,264 shares, September 30, 1996;
3,784,605 shares, December 31, 1995;
3,784,605 shares,
September 30, 1995 3,493,013 3,504,388 3,504,388
Retained earnings 46,851,050 43,486,460 45,878,858
Deferred compensation costs ( 68,175) (272,691) (340,866)
Note receivable for common stock (65,000) (65,000) (65,000)
------------ ------------ ------------
50,210,888 46,653,157 48,977,380
----------- ----------- -----------
$80,387,746 $77,486,482 $74,475,833
=========== =========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
Page 3 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS for the nine
months ended September 30, 1996 and 1995
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
----------- ------------
Net revenues $80,141,506 $71,169,949
Operating expenses 61,064,016 54,372,612
----------- -----------
Gross profit 19,077,490 16,797,337
Selling, general and administrative expenses 5,665,668 5,586,844
Operating income 13,411,822 11,210,493
----------- -----------
Other income (expense):
Interest income 214,924 165,085
Interest expense (238,515) (405,801)
Miscellaneous, net 296,244 203,454
----------- -----------
272,653 ( 37,262)
----------- -----------
Earnings before income taxes 13,684,475 11,173,231
Federal and state income taxes (5,490,000) (4,470,000)
----------- -----------
Net earnings $ 8,194,475 $ 6,703,231
=========== ===========
Net earnings per share (based on
weighted average shares outstanding of
3,747,195 and 3,785,494 in 1996 and 1995,
respectively) $ 2.19 $ 1.77
====== ======
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS for the three
months ended September 30, 1996 and 1995
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30,
1996 1995
----------- ------------
Net revenues $13,981,302 $13,222,206
Operating expenses 14,995,938 14,620,909
----------- -----------
Gross profit (loss) (1,014,636) (1,398,703)
Selling, general and administrative expenses 1,767,794 2,173,521
----------- -----------
Operating income (loss) (2,782,430) (3,572,224)
----------- -----------
Other income (expense):
Interest income 120,293 68,142
Interest expense (292) (49,069)
Miscellaneous, net 171,441 105,447
----------- -----------
291,442 124,520
----------- -----------
Earnings (loss) before income tax benefit (2,490,988) (3,447,704)
Federal and state income tax benefit 910,000 1,273,000
----------- -----------
Net earnings (loss) $(1,580,988) $(2,174,704)
=========== ===========
Net earnings (loss) per share (based on
weighted average shares outstanding of
3,704,721 and 3,786,119 in 1996 and 1995,
respectively) $( .43) $( .57)
======= =======
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5 of 33
<PAGE>
<TABLE>
<CAPTION>
CHURCHILL DOWNS INCORPORATED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the nine month period ended September 30, 1996
Note Deferred
Common Retained Receivable for Compensation
Stock Earnings Common Stock Costs Total
<S> <C> <C> <C> <C> <C>
Balances December 31, 1995 $ 3,504,388 $43,486,460 $ (65,000) $ (272,691) $46,653,157
Net earnings 8,194,475 8,194,475
Deferred compensation
amortization 204,516 204,516
Issuance of common stock 112,941 112,941
Repurchase of common stock (124,316) (4,829,885) (4,954,201)
------------ ------------ ------------- ----------- ------------
Balances September 30, 1996 $ 3,493,013 $46,851,050 $ (65,000) $ (68,175) $50,210,888
=========== =========== ============ ========== ===========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</FN>
</TABLE>
Page 6 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1996 and 1995
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
1996 1995
----------- ------------
Cash flows from operating activities:
Net earnings $ 8,194,475 $ 6,703,231
Adjustments to reconcile net earning to
net cash provided by operating activities:
Depreciation and amortization 3,441,832 3,476,628
Increase (decrease) in cash resulting from
changes in operating assets and liabilities:
Accounts receivable (1,053,837) 1,050,756
Other current assets 286,813 (72,703)
Income taxes payable 1,520,000 1,636,008
Deferred revenue (4,272,852) (4,714,095)
Accounts payable and accrued expenses 7,483,107 2,020,444
Minority interest 175,391 --
Other 406,418 1,637,571
----------- ----------
Net cash provided by operating activities 16,181,347 11,737,840
----------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment, net (2,292,030) (7,599,504)
Net cash used in investing activities (2,292,030) (7,599,504)
Cash flows from financing activities:
Decrease in bank note payable, net (3,465,295) (1,170,042)
Dividend paid (1,892,302) (1,891,659)
Common stock issued 112,941 --
Common stock repurchased (4,954,201) --
----------- -----------
Net cash used in financing activities (10,198,857) (3,061,701)
------------ -----------
Net increase in cash and cash equivalents 3,690,460 1,076,635
Cash and cash equivalents, beginning of period 5,856,188 2,521,033
----------- -----------
Cash and cash equivalents, end of period $ 9,546,648 $ 3,597,668
=========== ===========
Supplemental disclosures of cash flow
information: Cash paid during the period
for:
Interest $ 261,182 $ 355,610
Income taxes $ 3,770,000 $ 2,790,000
The accompanying notes are an integral part of the consolidated financial
statements.
Page 7 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the
nine months ended September 30, 1996 and 1995
(Unaudited)
1. Because of the seasonal nature of the Company's business,
revenues and operating results for any interim quarter are not indicative of the
revenues and operating results for the year and are not necessarily comparable
with results for the corresponding period of the previous year. The Company
normally earns a substantial portion of its net income in the second quarter of
each year during which the Kentucky Derby is run. The Kentucky Derby is run on
the first Saturday in May.
During the nine months ended September 30, 1996 the Company
conducted simulcast receiving wagering for 1,115 location days. The Company
operated simulcast wagering at its Sports Spectrum site in Louisville, Kentucky
for 160 days during the nine month period, compared to 163 days in 1995.
Additionally, the Company conducts whole card simulcast wagering on-track during
its Churchill Downs live meets. Through its subsidiary, Hoosier Park L.P.
("HPLP"), the Company conducted simulcast wagering at its racetrack in Anderson,
Indiana and at three simulcast wagering facilities located in Merrillville, Ft.
Wayne and Indianapolis, Indiana for a total of 955 days compared to 542 days in
1995 when only three facilities were operating for a portion of the year.
2. The accompanying consolidated financial statements are presented
in accordance with the requirements of Form 10-Q and consequently do not include
all of the disclosures normally required by generally accepted accounting
principles or those normally made in the Company's annual report on Form 10-K.
The year end condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles. Accordingly, the reader of this Form 10-Q may wish to
refer to the Company's Form 10-K for the period ended December 31, 1995 for
further information. The accompanying consolidated financial statements have
been prepared in accordance with the registrant's customary accounting practices
and have not been audited. In the opinion of management, all adjustments
necessary for a fair presentation of this information have been made and all
such adjustments are of a normal recurring nature.
3. On January 26, 1994, the Company, through its wholly owned
subsidiary, Churchill Downs Management Company ("CDMC"), purchased Anderson
Park, Inc. ("API") for approximately $1,950,000. API owned an Indiana
Standardbred racing license and was in the process of constructing a racing
facility in Anderson, Indiana. Subsequently, the facility was completed and,
contemporaneously with the commencement of operations on September 1, 1994 the
net assets of API were contributed to a newly formed partnership, HPLP, in
return for an 87% general partnership interest.
Page 8 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the
nine months ended September 30, 1996 and 1995 (continued)
(Unaudited)
In December 1995, the Company entered into a Partnership Interest
Purchase Agreement with Conseco HPLP, L.L.C. ("Conseco") for the sale of 10% of
the Company's partnership interest in HPLP to Conseco. This sale was closed on
May 31, 1996. The purchase price for the 10% partnership interest was $218,390
and the transaction also included a payment of $2,603,514 for the acquisition of
a 10% interest in the debt owed by HPLP to CDMC at face value of debt at the
date of the closing. Conseco and Pegasus Group, Inc. ("Pegasus") are limited
partners of HPLP and API continues to be the sole general partner of HPLP. This
sale is not anticipated to have any material effect on operations in 1996.
From May 31, 1996 through December 31, 1998, Conseco has an option
to purchase from API an additional 47% partnership interest in HPLP and an
additional 47% interest in the debt owed by HPLP to CDMC. The purchase price of
the additional partnership interest will be approximately $6,222,000 and the
purchase price of the additional debt will be approximately $15,934,000. This
purchase is subject to the approval of the Indiana Horse Racing Commission.
Following this purchase, Conseco will be the sole general partner of HPLP, and
API and Pegasus will be limited partners of HPLP with partnership interests of
30% and 13%, respectively. CDMC will continue to have a long-term management
agreement with HPLP pursuant to which CDMC has operational control of the
day-to-day affairs of HPLP and its related simulcast operations.
4. During the nine month period ended September 30, 1996, the
Company acquired 58,650 shares of its common stock at a total cost of
$2,346,001, and 75,600 shares at a total cost of $2,608,200. Additionally,
during this period the Company issued 3,909 shares of its common stock to
employees under its Stock Purchase Plan for total proceeds of $112,941.
Quarterly earnings per share amounts do not add to year-to-date earnings per
share for 1996 because of these changes in the number of outstanding shares.
5. The Company has an unsecured $20,000,000 bank line of credit with
various options for the interest rate, none of which are greater than the bank's
prime rate. Borrowings are payable on January 31, 1997. There were no borrowings
outstanding at September 30, 1996 and $6.0 million in borrowings were
outstanding at September 30, 1995.
6. On January 22, 1992, the Company acquired certain assets of
Louisville Downs, Incorporated for $5,000,000. In conjunction with this
purchase, the Company withheld $1,000,000 from the amount due to the sellers to
offset certain costs related to the remediation of environmental contamination
associated with underground storage tanks at the site. All of the $1,000,000
hold back has been utilized as of December 31, 1995.
Page 9 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS for the
nine months ended September 30, 1996 and 1995 (continued)
(Unaudited)
It is not anticipated that the Company will have any liability as a
result of compliance with environmental laws with respect to any of the
Company's property. Compliance with environmental laws has not otherwise
affected development and operation of the Company's property and the Company is
not otherwise subject to any material compliance costs in connection with
federal or state environmental laws.
7. Certain balance sheet and statement of operations items have been
reclassified in the prior year to conform to current period presentation.
Page 10 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
This discussion and analysis contains both historical and
forward-looking information. The forward-looking statements are made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements may be significantly impacted by certain risks
and uncertainties described herein, and in the Company's annual report on Form
10-K for the year ended December 31, 1995.
The Company's principal business is conducting pari-mutuel wagering
on Thoroughbred and Standardbred horse races. For many years, the Company has
conducted live Spring and Fall race meetings for Thoroughbred horses in
Kentucky. In 1988, the Company began in-state simulcasting ("intertrack") of its
live races, except those run on Kentucky Derby Day, by sending its video signal
to other locations in Kentucky for purposes of pari-mutuel wagering into the
Company's mutuel pool. In 1989, the Company commenced operations as a receiving
track for intertrack simulcasting. During November 1991, the Company began
interstate simulcasting for all of the live races with the receiving locations
participating in the Company's mutuel pool. The Kentucky Derby and Kentucky
Oaks, which are run on the first weekend in May of each year, continue to be the
Company's outstanding attractions. In 1995, for the first time, Churchill Downs
offered the simulcast of its races on Kentucky Derby Day to racetracks within
Kentucky and continued the practice in 1996. In 1996, Derby weekend accounted
for approximately 30% of total on-track pari-mutuel wagering and 35% of total
on-track attendance for the 1996 Spring Meet. In July 1994, the Company began
whole card simulcasting whereby the Company imports a full program or race card
from host tracks located outside the state for pari-mutuel wagering purposes.
Whole card simulcasting has created a major new wagering opportunity for patrons
of the Company in both Kentucky and Indiana.
The Company, through its subsidiary, HPLP, is majority owner and
operator of Indiana's only pari-mutuel racetrack, Hoosier Park at Anderson.
Hoosier Park conducted two Harness race meets, as well as simulcast wagering,
during its first 16 months of operation. During 1995 improvements were made to
Hoosier Park for the track's inaugural Thoroughbred meet. From January 1995
through October 1995, the Company opened off-track wagering facilities in
Merrillville, Fort Wayne and downtown Indianapolis, Indiana. The license for the
fourth facility in Jeffersonville, Indiana was surrendered in July 1995 because
ownership of the tentative site was in question and resolution was not expected
in the near future. The Company is continuing to evaluate sites for the location
of a fourth satellite wagering facility.
The Company's principal sources of income are commissions from
on-track pari-mutuel wagers, commissions from intertrack and fees from
interstate simulcast wagers, admissions and seating, concession commissions
(primarily for the sale of food and beverages), and license, rights, broadcast
and sponsorship fees. The Company's primary source of income is pari-mutuel
wagering.
Page 11 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
In Kentucky, licenses to conduct Thoroughbred race meetings and to
participate in simulcasting are approved annually by the Kentucky Racing
Commission based upon applications submitted by the racetracks in Kentucky,
including the Company. Based on gross figures for on-track pari-mutuel wagering
and attendance, the Company is the leading Thoroughbred racetrack in Kentucky.
In Kentucky, the Company has been granted a license to conduct live racing
during the period from April 27, 1996, through June 30, 1996, and from October
27, 1996, through November 30, 1996, for a total of 78 racing days. For 1997,
the Company has been granted a license to conduct live racing during the period
from April 26 through June 29, 1997, and from October 26 through November 29,
1997.
In Indiana, licenses to conduct live Standardbred and Thoroughbred
race meetings and to participate in simulcasting are approved annually by the
Indiana Horse Racing Commission based upon applications submitted by the
Company. Currently, the Company is the only facility in Indiana licensed to
conduct live Standardbred or Thoroughbred race meetings and to participate in
simulcasting. In Indiana, the Company has received a license to conduct live
racing for a total of 133 racing days, including 80 days of Standardbred racing
from April 25, 1996 through September 2, 1996, and 53 days of Thoroughbred
racing from September 20, 1996 through November 30, 1996. The Company has
requested a license to conduct live racing in 1997 for a total of 140 racing
days, including 85 days of Standardbred racing from April 24 through August 24,
1997, and 55 days of Thoroughbred racing from September 12 through November 25,
1997. The Indiana Horse Racing Commission must rule on the request by December
31, 1996. The Company does not anticipate that it will receive dates
substantially different from the dates requested.
Page 12 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
The Company operated two live racing facilities and conducted
simulcast wagering at four locations during the nine month period ended
September 30, 1996. The chart below summarizes the results of these operations.
<TABLE>
<CAPTION>
KENTUCKY INDIANA
Nine Months Nine Months % Nine Months Nine Months %
Ended Sept. 30, Ended Sept. 30, Increase Ended Sept. 30, Ended Sept. 30, Increase
1996 1995 (DECREASE) 1996 1995 (DECREASE)
--------------- --------------- --------- --------------- --------------- ---------
ON-TRACK
- --------
<S> <C> <C> <C> <C> <C> <C>
Number of Race Days 48 46 4% 89 126 (35)%
Attendance 685,228 686,189 0 118,928 204,114 (42)
Handle $95,077,056 $88,436,906 8 $14,075,998 $20,492,181 (31)
Avg. daily attendance 14,276 14,917 (4) 1,336 1,620 (18)
Avg. daily handle $ 1,980,772 $1,922,541 3 $ 86,834 $ 162,636 (47)
Per capita handle $138.75 $128.88 8 $64.98 $100.40 (35)
INTERTRACK/SIMULCAST-HOST
(SENDING)
Number of Race Days 48 46 4 89 108 (18)
Handle $245,018,693 $137,265,922 78 $ 6,118,208 $7,802,709 (22)
Avg. daily handle $5,104,556 $2,984,042 71 $ 68,744 $ 72,247 ( 5)
INTERTRACK/SIMULCAST-RECEIVING*
Number of Race Days 160 163 (2) 955 542 76
Attendance 361,018 377,254 (4) ** 225,091 **
Handle $95,883,152 $89,630,038 7 $87,991,052 $63,046,805 40
Avg. daily attendance 2,256 2,314 (3) ** 415 **
Avg. daily handle $599,270 $549,878 9 $ 92,137 $116,323 (21)
Per capita handle $265.59 $237.59 12 ** $280.09 **
<FN>
* The Company's Indiana operations include three separate simulcast wagering
facilities.
** Attendance figures are not kept for the off-track wagering facilities in
Indianapolis, Fort Wayne, or for simulcast-receiving at Hoosier Park.
</FN>
</TABLE>
Page 13 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
With the advent of whole card simulcasting, the Company conducts
interstate simulcasting virtually year-round on multiple racing programs each
day from around the nation. The number of receiving days has increased in 1996
when compared to 1995 because of additional off-track wagering facilities being
opened in Indiana. During 1995, simulcast wagering was being conducted at
Hoosier Park in Anderson, Indiana and beginning January 25, 1995 at
Merrillville, Indiana. Two additional simulcast facilities were opened during
1995, one in Ft. Wayne, Indiana on April 25, 1995, and the other in
Indianapolis, Indiana in October 25, 1995. Simulcast wagering was conducted at
all four facilities throughout the nine month period ended September 30, 1996.
For 1996, the Company has been granted a license to operate simulcast receiving
locations in Kentucky and Indiana for any and all possible dates from January 1
through December 31 and intends to receive simulcasting on all possible days.
Hoosier Park may ultimately be supported by a fourth whole card simulcasting
facility. An increase in the number of days or facilities is expected to enhance
operating results.
Because the business of the Company is seasonal, the number of persons
employed will vary throughout the year. Approximately 600 individuals are
employed on a permanent year-round basis. During the live race meetings, as many
as 2,600 persons are employed.
By the end of the second quarter of 1997, as many as five Indiana
riverboats may be operating along the Ohio River, with one of the nation's
largest complexes to be located 10 miles from Louisville in Harrison County,
Indiana. Studies project that direct competition with these boats could result
in as much as a 30% decline in on-track wagering at Churchill Downs and a 20%
decline in Sports Spectrum business. In response, the Company's Board of
Directors passed a resolution at its June 13, 1996 meeting instructing the
Company's management to aggressively pursue alternative forms of gaming at its
racetrack facilities in Louisville. The integration of alternative gaming
products at the racetrack is one of four core business strategies developed by
the Company to grow its live racing program. Management has been positioning the
Company to compete in this changing environment for the past several years by
strengthening its flagship operations, increasing its share of the interstate
simulcast market, and geographically expanding its racing operations into
Indiana. The Company currently is working to build a consensus within Kentucky's
horse industry for a plan to offer alternative gaming products exclusively at
state racetracks.
On May 7, 1996 the Company purchased 58,650 shares of common stock at a
total cost of $2,346,001. On August 2, 1996 the Company issued 3,909 shares of
it common stock to employees under its Stock Purchase Plan for total proceeds of
$112,941. Additionally, on September 27, 1996 the Company purchased 75,600
shares of common stock at a total cost of $2,608,200. These purchases had a
positive effect on earnings per share, adding $.01 to earnings per share for the
quarter ended September 30, 1996 and $.02 to earnings per share for the nine
month period ended September 30, 1996. The Company expects 1996 total earnings
per share to benefit by approximately $.03 as a result of the purchases.
Page 14 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 TO 1995
Net revenue during the nine months ended September 30, 1996 increased
$9.0 million. Kentucky operations contributed 39%, or $3.5 million to the total
increase, with Simulcast-Host showing the largest increase at $1.5 million.
Simulcast-Host represents revenues generated by transmitting the Company's live
races at Churchill Downs outside the state of Kentucky to outlets across the
nation. The number of outlets increased from 226 in 1995 to 401 in 1996.
On-track wagering on the Company's live races at Churchill Downs was 3.2% below
1995. This decrease was offset by an increase in wagering on whole card
simulcast races during 41 days of the live meet.
Indiana operations contributed $5.5 million, or 61%, to the revenue
increase. Simulcast-Receiving increased $6.6 million primarily as a result of
the increase in the number of receiving facilities in 1996. On-track revenue
decreased at Hoosier Park by $1.9 million when compared to 1995 primarily due to
the Standardbred live racing meet starting three weeks later and having one less
race day per week this year, resulting in 24 fewer race days this year, as well
as 13 fewer race days this year due to the Thoroughbred race meet starting one
month later in 1996. Riverboat admissions revenue, which is the Indiana
riverboat admissions tax that is payable to licensed racetrack facilities per
Indiana state law, has increased by $1.1 million in 1996, as this tax was not in
effect during the nine month period ended September 1995.
Page 15 of 33
<PAGE>
<TABLE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
<CAPTION>
NET REVENUE SUMMARY
Nine Months Nine Months 1996 VS. 1995
Ended % To Ended % To
September 30, Total September 30, Total $ %
1996 Revenue 1995 Revenue Change Change
------------- ------- ------------- ------- ------ ------
Pari-Mutuel Revenue:
<S> <C> <C> <C> <C> <C> <C>
On-track $16,005,640 20% $18,062,027 25% $(2,056,387) (11)%
Intertrack-Host 4,906,386 6 4,215,982 6 690,404 16
Simulcast-Receiving 26,731,940 33 19,320,361 27 7,411,579 38
Simulcast Host 7,473,423 9 5,952,802 8 1,520,621 26
------------ ---- ------------ ---- ------------ ---
$55,117,389 68% $47,551,172 66% $ 7,566,217 16%
Admission & Seat Revenue 10,978,504 14 11,089,122 16 (110,618) (1)
License, Rights, Broadcast
& Sponsorship Fees 5,390,737 7 5,425,232 8 (34,495) (1)
Concession Commission 2,152,272 3 2,096,468 3 55,804 3
Program Revenue 2,457,357 3 2,257,842 3 199,515 9
Riverboat Admissions
Revenue 1,073,188 1 0 0 1,073,188 N/A
Derby Corporate Village 1,128,270 1 998,940 1 129,330 13
Other 1,843,789 3 1,751,173 3 92,616 5
----------- ---- ----------- ---- ----------- ----
$80,141,506 100% $71,169,949 100% $ 8,971,557 13%
=========== ==== =========== ==== =========== ====
</TABLE>
Page 16 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Operating expenses increased $6.7 million during the nine month
period. Gross margin remained relatively flat, increasing from 23.6% to 23.8%
through September 30, 1996. Changes in specific expense categories follow.
Purse expense increased $2.6 million due largely to the increase in
Simulcast-Receiving revenue in Indiana as a result of the increased number of
receiving locations, as well as an increase in handle, in 1996. In Kentucky and
Indiana purse expense varies directly with pari-mutuel revenues and is
calculated as a percentage of the related revenue and may change from year to
year pursuant to contract or statute.
The $779,000 increase in Advertising, Marketing and Publicity is due
largely to the marketing of the satellite wagering facilities in Indiana.
Approximately $300,000 was spent as part of an intensive marketing campaign in
Indiana with approximately $150,000 being spent in each of the Fort Wayne and
Hoosier Park (Anderson, Indiana) areas. Response to the marketing efforts was
positive and the goal is to maintain increased handle as marketing support is
reduced. Additionally, new marketing programs such as the Twin Spires Club and
Winners Circle Sponsorship, along with expenses incurred in conjunction with
ESPN's Derby Week coverage, also caused increases during the nine month period.
Audio, Video and Signal Distribution expense increased $227,000 due
primarily to the additional facility in Indiana. Totalisator and Simulcast Host
Fee expenses increased for the nine month period $259,000 and $1.8 million,
respectively. These expenses are related to the operation of the off-track
wagering facilities in both Kentucky and Indiana. Totalisator expense is based
on total wagers taken at the facilities. Simulcast host fees are paid to the
track whose live races are being simulcast at the facilities. As total wagers
increase, these expenses, along with purses, increase accordingly.
Program expenses increased $285,000 from September 1995 to September
1996. This is primarily attributed to higher paper cost in Kentucky, as well as
the addition of the third Indiana satellite wagering facility and a higher than
expected scrap rate in Indiana.
Maintenance and Utilities increased $294,000 and $462,000,
respectively. General repairs at the four Indiana facilities account for the
increase in maintenance, which includes expenses for winter storm damage and
supplies. Utilities increased overall due to the unseasonably cold winter
temperatures and the additional facility in Indiana.
Facility rent in 1996 is attributable to the Indianapolis simulcast
facility.
Page 17 of 33
<PAGE>
<TABLE>
<CAPTION>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
OPERATING EXPENSE SUMMARY
Nine Months Nine Months
Ended % To Ended % To 1996 VS. 1995
September 30, Total September 30, Total $ %
1996 Expense 1995 Expense Change Change
Purses:
<S> <C> <C> <C> <C> <C> <C>
On-track $ 8,399,385 14% $ 9,143,972 17% $ (744,587) (8)%
Intertrack-Host 2,262,832 4 1,937,552 3 325,280 17
Simulcast- Receiving 8,605,144 14 6,695,426 12 1,909,718 29
Simulcast-Host 3,784,604 6 2,633,190 5 1,151,414 44
------------ ---- ----------- --- ----------- ---
$23,051,965 38 $20,410,140 37 $2,641,825 13
Wages and Contract
Labor 11,823,911 19 11,751,919 21 71,992 1
Advertising, Marketing
& Publicity 2,976,679 5 2,197,422 4 779,257 35
Racing Relations
& Services 1,036,211 2 1,070,354 2 (34,143) (3)
Totalisator Expense 967,192 2 707,819 1 259,373 37
Simulcast Host Fee 5,571,135 9 3,807,239 7 1,763,896 46
Audio/Video & Signal
Distribution Expense 1,720,787 3 1,494,017 3 226,770 15
Program Expense 1,817,351 3 1,532,121 3 285,230 19
Depreciation &
Amortization 3,441,832 5 3,401,628 6 40,204 1
Insurance, Taxes &
License Fees 1,950,288 3 1,932,474 4 17,814 1
Maintenance 1,422,775 2 1,128,888 2 293,887 26
Utilities 2,006,843 3 1,544,668 3 462,175 30
Derby Corporate Village 436,323 1 404,478 1 31,845 8
Facility/Land Rent 484,311 1 0 0 484,311 N/A
Other meeting expense 2,356,413 4 2,989,445 6 (633,032) (21)
----------- ---- ----------- ---- ---------- ----
$61,064,016 100% $54,372,612 100% $6,691,404 12%
=========== ==== =========== ==== ========== ====
</TABLE>
Page 18 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
Selling, general and administrative expenses remained relatively
flat during the nine month period, increasing $79,000.
Interest expense was down $167,000 as positive cash flow from
operations has allowed the Company to pay down its line of credit. As of May 7,
1996 the outstanding balance on the line of credit was completely retired.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net revenue increased $759,000 due primarily to an increase in
Indiana Riverboat Admissions revenue. This admissions tax was not in effect
during the nine month period ended September 1995.
Operating expenses increased by $375,000 primarily due to the
increase in Purse Expense related to the increase in Indiana Simulcast-Receiving
revenue. Selling, General, and Administrative expenses decreased $406,000 during
the quarter. This is primarily due to expenses incurred in 1995 relating to the
opening of the Indianapolis simulcast wagering facility.
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 TO THREE MONTHS ENDED JUNE
30, 1996
Net revenues decreased $41.0 million primarily due to the $49.2
million in live racing revenue at Churchill Downs during the second quarter.
Churchill Downs' second quarter included 48 live racing days versus no live
racing during the three months ended September 30, 1996. This decrease was
partially offset by an increase in simulcast receiving days in the third
quarter. Operating expenses decreased $18.2 million also due to the live racing
days.
Selling, general and administrative costs for the third quarter of
1996 were $1.8 million, down from $2.1 million in the quarter ended June 30,
1996. This decrease is primarily due to costs related to the live race meet at
Churchill Downs in the second quarter.
Page 19 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
SIGNIFICANT CHANGES IN THE BALANCE SHEET DECEMBER 31, 1995 TO SEPTEMBER 30, 1996
The cash balances at September 30, 1996 were $3.7 million higher
than December 31, 1995 due to the cash generated during 48 live race days at
Churchill Downs, principally Kentucky Derby and Oaks weekend, and 89 live race
days at Hoosier Park. Cash balances during May and June are historically at the
highest levels of the year, and they decrease as the year progresses due to
normal business operations.
Accounts receivable at September 30, 1996 were $1.1 million higher
than December 31, 1995 due primarily to the Indiana Riverboat Admission tax
which had not been received as of September 30, 1996. The first riverboat opened
in December 1995.
Property, plant & equipment increased by $2.3 million as a result of
routine capital spending throughout the Company, as well as an expansion of the
Churchill Downs General Office.
Accounts payable at September 30, 1996 were $6.5 million higher than
at December 31, 1995 due in part to $2.6 million which was payable for the
repurchase of Churchill Downs stock. Also, purses payable increased $1.3 million
due to the Indiana Riverboat Admissions tax and $610,000 due to the funds
generated by the Indianapolis simulcast facility. Additionally, Churchill Downs
owes the State of Kentucky $701,000 for mutuel tickets which have been
outstanding for more than two years.
Deferred revenue was lower at September 30, due to the significant
amount of admission and seat revenue that was received in advance at December 31
and recognized as income in May 1996 for the Kentucky Derby and Oaks.
Notes payable were $3.4 million lower at September 30, 1996 as
positive cash flow has allowed the Company to eliminate its outstanding bank
debt. However, Hoosier Park recognized $2.9 million in debt due to the Conseco
purchase of 10% of the partnership.
Dividends payable decreased by $1.9 million due to the payment of
the dividend in January 1996.
Income taxes payable at September 30, 1996 relate to the estimated
expense due for the nine month period, less any estimated tax payments. The
increase in earnings has resulted in a corresponding increase in income taxes
payable.
Page 20 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (continued)
SIGNIFICANT CHANGES IN THE BALANCE SHEET SEPTEMBER 30, 1995 TO SEPTEMBER 30,
1996
Cash balances at September 30, 1996 are $5.9 million above September
30, 1995 principally due to payments in 1995 for construction of the wagering
facilities in northern and central Indiana.
Accounts receivable at September 30, 1996 are up due to the Indiana
Riverboat Admissions tax.
Property, plant & equipment increased by $2.6 million due to routine
capital spending throughout the Company, as well as an expansion of the
Churchill Downs General Office.
Accounts payable increased by $5.6 million primarily due to the
amount payable for the repurchase of Churchill Downs stock. Additionally, the
purses payable increased $600,000 due to the Indiana Riverboat Admissions tax
and $600,000 due to a larger carryover from the 1996 Churchill Downs Spring Meet
than in 1995. Churchill Downs also owes the State of Kentucky $701,000 for
mutuel tickets which have been outstanding for more than one year.
LIQUIDITY AND CAPITAL RESOURCES
Working capital for the nine months ended September 30, 1996 and
September 30, 1995 is as follows:
SEPTEMBER 30
----------------------------------
1996 1995
Working capital deficiency $( 8,080,963) $(6,786,248)
Working capital ratio .62 to 1 .45 to 1
The working capital deficiency is primarily a result of the nature
and seasonality of the Company's business. Cash flows provided by operations
were $16.2 million for the nine months ended September 30, 1996; $16.5 million
for the twelve months ended December 31, 1995; and $11.7 million for the nine
months ended September 30, 1995. Management believes cash flows from operations
during 1996 and funds available under the Company's unsecured line of credit
will be sufficient to fund dividend payments (historically about $1.9 million)
and additions and improvements to the property, plant and equipment and general
office which are expected to be approximately $3.0 million.
The Company has a $20,000,000 unsecured line-of-credit available
with $20 million available at September 30, 1996 to meet working capital and
other short-term requirements. Management believes that the Company has the
ability to obtain additional long-term financing should the need arise.
Page 21 of 33
<PAGE>
CHURCHILL DOWNS INCORPORATED
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
A. Exhibit 10 - Churchill Downs Incorporated 1996 Incentive
Compensation Plan
B. During the quarter ending September 30, 1996, no Form 8-K's
were filed by the Company.
Page 22 of 33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned hereunto duly authorized.
November 13, 1996 /S/THOMAS H. MEEKER
Thomas H. Meeker
President
November 13, 1996 /S/VICKI L. BAUMGARDNER
Vicki L. Baumgardner, Treasurer
(Principal Financial and
Accounting Officer)
Page 23 of 33
<PAGE>
EXHIBIT INDEX
NUMBERS DESCRIPTION BY REFERENCE TO
(10)(c) Churchill Downs Incorporated Page 25
Incentive Compensation Plan (1996)
Page 24 of 33
CHURCHILL DOWNS INCORPORATED
INCENTIVE COMPENSATION PLAN (1996)
ARTICLE 1
PURPOSE
The purpose of the CHURCHILL DOWNS INCORPORATED INCENTIVE
COMPENSATION PLAN is to promote the interests of the Company and its
stockholders by providing greater incentives to officers and other key
management employees by rewarding them for services rendered with compensation
in an amount which is directly related to the success of the Company.
ARTICLE 2
DEFINITIONS
2.1 DEFINITIONS. The following words and phrases, when used herein,
unless their context clearly indicates otherwise, shall have the following
respective meanings:
A. BENEFICIARY. A person or persons (natural or otherwise)
designated by a Participant in accordance with the provisions of Article 8
to receive any benefits which shall be payable under this Plan.
B. BOARD. The Board of Directors of Churchill Downs
Incorporated.
C. BUDGET. The annual operating budget approved by the
Board for each year during the term of the Plan.
D COMPANY. Churchill Downs Incorporated and its
subsidiaries.
E DISABILITY. A physical or mental condition arising after
the Effective Date hereof which qualifies a Participant for disability
benefits under the Social Security Act in effect on the date of disability.
F EARNINGS PER SHARE. The annual net income of the
Company on a consolidated basis, before federal and state income taxes,
after any allowance for payments made or to be made under this Plan, and
after inclusion of all extraordinary revenues and deduction of all
extraordinary expenses, divided by the outstanding common stock of the
Company as of fiscal year end, all as calculated in accordance with
generally accepted accounting principles consistently applied and confirmed
by the audit report of the Company's independent public accountants.
G. EFFECTIVE DATE. January 1, 1996.
H. INCENTIVE COMPENSATION AWARD. The award as defined in
Article 6. Such award shall be an "Annual Incentive Compensation Award".
Page 25 of 33
<PAGE>
I. PARTICIPANT. An employee of the Company who is selected
for participation in the Plan in accordance with the provisions of Article
5. For purposes of Articles 7 and 8, the term Participant shall also
include a former employee who is entitled to benefits under this Plan.
J. PARTICIPATION CLASSIFICATION. The classification
assigned to each Participant in accordance with the provisions of Article 5
K. PARTICIPATION PERCENTAGE. The percentages of participa-
tion in the Plan as defined in Article 6.
L. PERCENTAGE ACHIEVEMENT LEVEL. The percentages
established annually by the Committee to be used, as provided in Section
6.2, in computing Annual Incentive Compensation Awards based upon partial
achievement of a Performance Goal.
M. PERFORMANCE GOAL. The performance goals as defined in
Article 6 and SCHEDULE A.
N. PLAN. The Churchill Downs Incorporated Incentive
Compensation Plan (1996).
O. PLAN YEAR. The twelve-month period commencing on
January 1 of one calendar year and ending on December 31 of the same
calendar year, which period is also the Company's fiscal year.
P. SALARY. The Participant's base annual salary as set by
either the Compensation Committee of the Board or the Company's chief
executive officer.
Q. TERMINATION DATE. December 31, 1996, or such earlier
date as may be determined under Section 9.2.
2.2 CONSTRUCTION. The masculine gender, where appearing in the Plan,
shall be deemed to include the feminine gender, unless the context clearly
indicates to the contrary.
ARTICLE 3
ADMINISTRATION
3.1 COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board (hereinafter the "Committee").
3.2 COMMITTEE'S POWER AND AUTHORITY. The Committee shall have full
and complete authority and power, subject only to the direction of the Board and
authorization by the Board, to administer the Plan in accordance with its terms
and carry out the provisions of the Plan. The Committee shall interpret the Plan
and shall determine all questions, factual, legal or otherwise, arising in the
administration, interpretation and application of the Plan, including but not
Page 26 of 33
<PAGE>
limited to questions of eligibility and the status and rights of Participants,
Beneficiaries and other persons. The Committee shall have any and all power and
authority (including discretion with respect to the exercise of such power and
authority) which shall be necessary, properly advisable, desirable, or
convenient to enable it to carry out its duties under the Plan. By way of
illustration and not limitation, the Committee is empowered and authorized to
make rules and regulations in respect to the Plan not inconsistent with the
Plan; to determine, consistently therewith, all questions that may arise as to
the eligibility, benefits, status and right of any person claiming benefits
under the Plan; to determine whether a Participant was terminated for just
cause; and subject to and consistent with, any applicable laws, to make factual
determinations, to construe and interpret the Plan and correct any defect,
supply any omissions or reconcile any inconsistencies in the Plan. Any such
determination by the Committee shall presumptively be conclusive and binding on
all persons. The regularly kept records of the Company shall be conclusive and
binding upon all persons with respect to a Participant's date and length of
employment, time and amount of salary and the manner of payment thereof, type
and length of any absence from work and all other matters contained therein
relating to employment. All rules and determinations of the Committee shall be
uniformly and consistently applied to all persons in similar circumstances.
3.3 COMMITTEE'S ANNUAL REVIEW. The Committee shall review the
operation of the Plan to determine its effectiveness in promoting its operating
results and the shareholders' investment; further, the Committee shall report
annually to the Board on its findings and make such recommendations as the
Committee deems appropriate.
ARTICLE 4
EFFECTIVE DATE AND TERMINATION
The Plan shall be effective as of January 1, 1996. The Plan shall
terminate on December 31, 1996, except with respect to the payment of any
Incentive Compensation Awards which may become due and payable thereafter, or
unless terminated earlier by action of the Board under Section 9.2.
ARTICLE 5
ELIGIBILITY AND PARTICIPATION
5.1 ELIGIBILITY. All Company officers and other key management
employees who are employed by the Company on the date of the adoption of this
Plan and who are specifically designated by the Committee as Participants shall
be Participants in the Plan as of January 1, 1996. In addition, any officers and
other key management employees who are subsequently designated by the Committee
as participants shall become Participants in the Plan on the date established by
the Committee for such participation. Once an employee becomes a Participant, he
will remain a Participant until the earliest of: [i] termination of this Plan;
[ii] termination of his active service with the Company; or [iii] termination of
his status as a Participant by decision of the Committee; provided, however,
that a Participant will be terminated from participation in the Plan only at the
beginning of a Plan Year.
5.2 CLASSIFICATIONS OF PARTICIPANTS. Simultaneous with the
Committee's designation of an employee as a Participant, the Committee shall
designate in which of four (4) classifications of
Page 27 of 33
<PAGE>
Participants the employee shall participate. Such Participation Classifications
shall be known as "Class A," "Class B," "Class C," and "Class D." The Committee
may change the Class designation of a Participant as of the beginning of any
Plan Year.
ARTICLE 6
ANNUAL INCENTIVE COMPENSATION AWARDS
6.1 PERFORMANCE GOALS. Annual Incentive Compensation Awards shall be
determined on the basis of the Company achieving the Performance Goals within
the following range as measured by the Company's Earnings Per Share for the
applicable year: the "Threshold Goal" (90% of the Earnings Per Share target set
in the applicable Budget), the "Target Goal" (100% of the Earnings Per Share
target set in the applicable Budget) and the "Maximum Goal" (115% of the
Earnings Per Share target set in the applicable Budget). The Performance Goals
established by the Committee for the Plan Year commencing January 1, 1996, are
set forth on SCHEDULE A.
6.2 COMPUTATION OF AWARD. For each Plan Year for which the Company
achieves the "Threshold Goal", each Participant shall, subject to adjustments in
accordance with Sections 6.3 and 6.4, be awarded an Annual Incentive
Compensation Award which shall be computed by multiplying: (i) the Participant's
Salary for the Plan Year; by (ii) the Participation Percentage, as shown on
SCHEDULE B for the Participant's Class; by (iii) the applicable Percentage
Achievement Level as established annually by the Committee. The Percentage
Achievement Levels for the Plan Year commencing January 1, 1996, are set forth
on SCHEDULE C.
6.3 DISCRETIONARY AWARD. For each Plan Year for which the Company
achieves the Threshold Performance Goal, one hundred percent (100%) of the
Annual Incentive Compensation Award shall be awarded to the Chief Executive
Officer ("CEO") (a Class A Participant), without regard to the achievement of
any additional performance standards; all other Participants shall automatically
be awarded the following percentage of the Annual Incentive Compensation Award
without regard to the achievement of any additional performance standards:
CLASS PERCENTAGE AMOUNT
B 75%
C 50%
D 25%
Notwithstanding the provisions of Section 6.2, the remaining percentage of the
Annual Incentive Compensation Award for all Participants (other than the CEO)
shall be awarded in the sole discretion of the CEO if the Participant has
achieved certain performance standards particular to his or her position with
the Company.
6.4 ADJUSTMENTS TO ANNUAL INCENTIVE COMPENSATION AWARD. An Annual
Incentive Compensation Award shall be adjusted by any one or more of the follow-
ing adjustments:
A. In the event a Participant shall, during a Plan Year,
die, retire, go on a
Page 28 of 33
<PAGE>
leave of absence with the Company's consent, terminate employment due to
Disability, or be terminated without just cause, the Annual Incentive
Compensation Award for that Participant for such Plan Year shall be
reduced, pro rata, based on the number of days in such Plan Year during
which he was not a Participant.
B. In the event that during a Plan Year a Participant shall be
discharged for just cause or shall voluntarily resign for any reason other
than Disability, the Annual Incentive Compensation Award for that
Participant shall be reduced to zero, and no Annual Incentive Compensation
Award shall be payable to that Participant for such Plan Year.
ARTICLE 7
PAYMENT OF BENEFITS
7.1 METHOD OF PAYMENTS. As soon as the Committee has determined the
amount of all of the Annual Incentive Compensation Awards at the end of a Plan
Year, it shall instruct the Company to pay each award in cash in one lump sum.
ARTICLE 8
DESIGNATION OF BENEFICIARIES
A Participant may file with the Committee a designation of a
Beneficiary or Beneficiaries in writing, which designation may be changed or
revoked by the Participant's sole action, provided that the change or revocation
is filed with the Committee in writing. If a Participant dies, any benefit which
the Participant is entitled to receive under the Plan shall be delivered to the
Beneficiary or Beneficiaries so designated, or if no Beneficiary has been
designated or survives the Participant, shall be delivered to the Executor or
Administrator of the Participant's estate.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 OTHER PLANS. Any payment made under the provisions of this Plan
shall be includable in or excludable from a Participant's compensation for
purposes of any other qualified or nonqualified benefit plan in which the
Participant may be eligible to participate by reference to the terms of such
other plan.
9.2 PLAN AMENDMENT AND TERMINATIONS. The Company, acting through the
Committee or the Board, reserves the right to amend and to terminate the Plan
for any reason and at any time. Any amendment or termination of this Plan shall
not affect the right of any Participant or his Beneficiary to receive an
Incentive Compensation Award after it has been earned.
9.3 RIGHT TO TRANSFER, ALIENATE AND ATTACH. Except to the extent
that a Participant may designate a Beneficiary under the provisions contained in
Article 8, the right of any Participant or any
Page 29 of 33
<PAGE>
beneficiary to any benefit or to any payment hereunder shall not be subject in
any manner to attachment or other legal process for the debts of such
Participant or Beneficiary; and any such benefit or payment shall not be subject
to anticipation, alienation, sale, transfer, assignment or encumbrance, except
to the extent that the right to such benefit is transferable by the Participant
by will or the laws of descent and distribution.
9.4 INDEMNIFICATION. No member of the Board or of the Committee and
no officer or employee of the Company shall be liable to any person for any
action taken in connection with the administration of this Plan unless
attributable to his own fraud or willful misconduct; nor shall the Company be
liable to any person for any such action unless attributable to fraud or willful
misconduct on the part of a director, officer or employee of the Company.
9.5 NON-GUARANTEE OF EMPLOYMENT. Neither the existence of this Plan
nor any award or benefit granted pursuant to it shall create any right to
continued employment of any Participant by the Company. No Participant shall,
under any circumstances, have any interest whatsoever, vested or contingent, in
any particular property or asset of the Company by virtue of any award, unpaid
bonus or other accrued benefit under the Plan.
9.6 SOURCE OF PAYMENT. No special or separate fund shall be
established or other segregation of assets made with respect to any immediate or
deferred payment under the Plan. All payment of awards shall be made from the
general funds of the Company. To the extent that a Participant or his
Beneficiary acquires a right to receive payments under this Plan, such right
shall be no greater than that of any unsecured general creditor of the Company.
9.7 WITHHOLDING TAXES. The Company shall have the right to deduct
from all payments made to the Participant, whether pursuant to this Plan or
otherwise, amounts required by federal, state or local law to be withheld with
respect to any payments made pursuant to this Plan.
Page 30 of 33
<PAGE>
SCHEDULE A
FISCAL YEAR 1996 ANNUAL PERFORMANCE GOALS
ANNUAL PERFORMANCE LEVEL EARNINGS PER SHARE
Threshold 90% of Budget - $1.30
Target 100% Budget - $1.44
Maximum 115% of Budget - $1.66
Page 31 of 33
<PAGE>
SCHEDULE B
PARTICIPATION PERCENTAGE
CLASS TARGET GOAL
A 45%
B 35%
C 25%
D 20%
Page 32 of 33
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE C
PERCENTAGE ACHIEVEMENT LEVELS
Calendar Year 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EPS-AFTER ICP $1.30 $1.31 $1.32- $1.34 $1.35- $1.37 $1.38 $1.39- $1.41 $1.42- $1.44
$1.33 $1.36 $1.40 $1.43
% of EPS 90% 91% 92% 93% 94% 95% 96% 97% 98% 99% 100%
Target
Percentage 50% 55% 60% 65% 70% 75% 80% 85% 90% 95% 100%
Achievement
Level
EPS-AFTER ICP $1.45 $1.46- $1.48- $1.50 $1.51 $1.52- $1.54 $1.55- $1.57 $1.58- $1.60
$1.47 $1.49 $1.53 $1.56 $1.59
% of EPS 101% 102% 103% 104% 105% 106% 107% 108% 109% 110% 111%
Target
Percentage 105% 108% 110% 115% 118% 120% 125% 128% 130% 135% 138%
Achievement
Level
EPS-AFTER ICP $1.61 $1.62- $1.64 $1.65-
$1.63 $1.66
% of EPS 112% 113% 114% 115%
Target
Percentage 140% 145% 148% 150%
Achievement
Level
</TABLE>
Page 33 of 33
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 9,546,648
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0
0
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